The strong profit of smelting acid strongly supports the copper smelting business[SMM Analysis]

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Since 2024, the price of sulfuric acid in Chinese copper smelters has continued to rise, and the trend of sulfuric acid prices has formed a sharp contrast with the trend of spot processing fees for copper concentrates.

On the supply side: The pattern of shortage in supply of copper concentrates (sulfide ores) has become increasingly obvious. Chinese copper smelters have reduced the utilization of sulfide ores and instead used more raw materials such as scrap copper, oxidized ores, and anode plates to maintain the production of copper cathode. Therefore, the supply of smelting acid has also been interfered with to a certain extent. Unlike what the market had previously expected, it was believed that with the continuous new construction and expansion of Chinese smelters, smelting acid would become a burden.

On the demand side: On the one hand, with the development of the new energy industry in Southeast Asia, the demand for sulfuric acid made from sulfur has increased significantly, and the price of sulfur has also risen steadily, which is beneficial to the demand for smelting acid as a substitute. On the other hand, China had previously implemented strict export restriction policies on the phosphate fertilizer processing industry. After the end of this year's spring plowing, the relaxation of export restrictions on phosphate fertilizers from the top down at the end of May further stimulated the demand for smelting acid in the fertilizer production industry.

From 2021 to 2023, Chinese copper smelters have experienced varying degrees of sulfuric acid stockpiling problems, and some smelters even paid fees to dispose of smelting acid. Smelting acid, which was once considered a burden, has now become the lifeline of copper smelters. Let's do a simple math problem. The production of 1 ton of electrolytic copper in a copper smelter will be accompanied by approximately 4 tons of sulfuric acid. The current average ex-factory price of smelting acid in major provinces is about 600-650 yuan. Let's take the lower limit. The acid production cost of the smelter is about 100 yuan/ton. Assuming that the US dollar to RMB exchange rate is 7.2 and the grade of copper concentrate is 25%, then 4*(600-100)*25%/7.2/1.6=43 US dollars. That is, the income from sulfuric acid can offset 43 metal tons of TC+RC, which can largely make up for the negative impact of the spot TC of copper concentrate. I think this is also the reason why Chinese copper smelters can still maintain high operating rates.

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